Amazon Advertising a Bright Spot Amid Lackluster Earnings Across Big Tech

After months of navigating rising costs and market volatility, the latest batch of earnings reports from Alphabet, Amazon, and Meta showed how changing consumer trends and macroeconomic conditions are impacting business operations and the top and bottom lines for some of the world’s biggest tech companies. 

Amazon, Alphabet, and Meta missed earnings expectations and issued lackluster financial forecasts, citing “substantial uncertainty” due to shifting global economic and geopolitical conditions. 

Macroeconomic conditions, regulatory concerns, the growing popularity of rival platforms, signal loss due to ad-tracking changes, and changing consumer behavior are all compounding to create a whirlwind of business challenges that are impacting growth across Big Tech companies.

Revenue for Amazon Advertising was a bright spot (with 25 percent year-over-year growth) amid the gloomy results reported across Big Tech ad sales divisions.

This week, Meta reported its second straight quarterly decline and warned investors that “the fourth quarter would be more of the same” after issuing a weak fourth-quarter outlook, according to CNBC. The company reported quarterly revenue of $27.7 billion, a year-over-year decline of more than four percent. Profits declined 52 percent to $4.4 billion. 

Business challenges, like the rise of TikTok and signal loss from ad-tracking changes, have combined to “shave more than half a trillion dollars from [Meta’s] value so far this year,” according to The Wall Street Journal. Sizable investments in building the metaverse via Reality Labs stand in sharp contrast to weakening margins as Meta’s metaverse bet has yet to pay off. Operating losses for that division topped $3.7 billion for the quarter. 

Related: Spotify reaches 456 million total monthly users in Q3, up 20% year-over-year and topping expectations

Amazon missed revenue expectations and issued an underwhelming forecast for next quarter as the company confronts “a slowdown in Amazon’s core retail business, as consumers return to shopping in stores,” among other macroeconomic challenges like rising prices and interest rates, according to CNBC. 

Takeaways from the Amazon earnings report: 

A bright spot in Amazon’s financial results, Amazon Advertising revenue grew an impressive 25 percent year-over-year to $9.55 billion, coming in above analysts’ expectations of $9.48 billion.

More than 25 million viewers tuned into the premiere of The Lord of the Rings: The Rings of Power, and over 15 million viewers watched the kickoff of NFL Thursday Night Football on Amazon Prime Video. 

For Amazon Prime Day and October’s Amazon Prime Early Access Sale, “the customer response to both events was quite positive,” said Amazon CEO Andy Jassy in the earnings report, as “it’s clear that, particularly during these uncertain times, customers appreciate Amazon’s continued focus on value and convenience.” 

Like its competitors, Amazon has responded to current economic conditions with aggressive cost-cutting measures like hiring freezes in corporate roles, shutting down experimental projects, and releasing warehouse space. 

Related: Microsoft misses estimates but stock up 5% on rosy guidance

Third-quarter earnings for Google parent Alphabet came in below expectations, marking the fifth consecutive quarter of decelerating growth for the company. Revenue growth slowed to six percent, coming in at $69.09 billion, versus analysts’ forecasts of $70.58 billion, according to CNBC. Foreign exchange rates, inflation, and a slowing global economy were cited as contributing factors to declining sales and revenue growth across business divisions at Alphabet. YouTube ad revenue also shrank for the first time since its earnings were broken out and reported separately. Analysts noted that YouTube earnings declines were “due in large part to persistent competition in streaming and short video” as rivals like Instagram Reels and TikTok capture advertiser interest and consumer attention. 

As reported by Insider Intelligence, Google’s disappointing performance last quarter was fueled by a “sluggish online ad market” as advertisers reduce online ad spending in response to volatile economic conditions. During the earnings call, Google executives outlined that the biggest cuts in ad spending are on insurance, loans, mortgages, and cryptocurrencies. Recent product improvements to Google Search and Google Cloud, announced at Google Search On and Google Cloud Next, were cited as positive momentum for the company as Alphabet responds to changing consumer behavior and business needs.

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Most tech companies shared a gloomy outlook for the upcoming quarter, citing “substantial uncertainty” amid shifting global economic and geopolitical conditions. Many, like Google and Facebook, have already implemented hiring freezes as executives look for new ways to streamline operations and cut costs. In a statement on the Meta earnings report, Founder and CEO Mark Zuckerberg could have been speaking for the sector when he said, “We’re approaching 2023 with a focus on prioritization and efficiency [to help] navigate the current environment and emerge an even stronger company.” With earnings season just getting started, the next few weeks will deliver critical insight into how leading companies across categories are navigating current market conditions and preparing for the months ahead.